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Charlotte So

Singapore-based aircraft leasing company BOC Aviation is looking at issuing offshore yuan bonds in Hong Kong, as well as bonds denominated in Hong Kong dollars and yen, according to chief executive Robert Martin.  
The bond issue would be part of a programme to fund a US$10 billion expansion plan for the next 10 years.
The company plans to increase the proportion of bond issues in its financing mix to 30 per cent of total funding sources in the near future, compared with 10 per cent at present, said Martin. 
The balance of the funding will be supplied by its parent, Bank of China, and through syndicated loans from  43 banks. 
It has so far borrowed US$200 million from its parent this year, following on loans of US$100 million last year. 
'We really believe this decade will mark the period that the aviation bond market opens up,' Martin said. 
A newly affluent class emerging throughout Asia over the past 10 years has created a large capital pool available for aircraft funding, he added, and BOC Aviation issued US$45 million worth of medium-term notes  in Singapore this month which were well received and widely-distributed among private banks. 
The issue followed a successful financing exercise by Singapore Airlines, which issued S$50 million (HK$301.6 million) in bonds in September.
There were the first corporate bonds to target retail investors in the city state, indicating that Asian investors were developing a taste for aviation bonds. 
 Whether BOC Aviation can issue yuan bonds for the first time will depend critically on the depth and maturity of the currency swap market between yuan and US dollars, said Martin.   
Finding financing for aircraft can be difficult. In the United States, the stand-alone credit rating of many carriers is single B or below the investment grading  threshold of BB. 
This forces them to issue bonds by securitising the aircraft they operate. Enhanced equipment trust certificates,  a structured product involving securitisation, have been popular among US carriers for  decades. 
Section 11-10 of the US bankruptcy code, the so-called Chapter 11, specifies the right of the investors to get hold of an airplane in 60 days once the airline is in default and unable to repay its debts.  Airlines can get a higher credit rating by securitising their aircraft to raise cash and obtain a lower cost of funding. 
However, not many countries have such a solid bankruptcy code, making the certificates much less popular among carriers elsewhere.
The Cape Town Treaty, named after the city in South Africa where it was agreed, came into existence to fill the void. 
The treaty creates an international registry of aircraft with their owners or lenders of securitised bonds, which works in the same manner as Chapter 11. 
At present, more than 30 countries, including the US, Ireland, China and the Philippines, have signed on to the treaty and agreed to adopt the protocol into their laws.
Bold ambition
BOC Aviation is looking for ways to fund its expansion over the next 10 years and is seeking, in billions of US dollars, $10b



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Bank of China (BOC)

BOC Aviation looking at HK yuan bonds for funds